Is the housing boom about to bust?

Every woman and their dog is telling us to throw caution to the wind and join the property market frenzy. Prices will keep rising, they reckon, because interest rates are so low and there’s all those new taxes on the way. So take a deep breath and borrow to the hilt to buy that dream house that will otherwise be permanently out of reach.

Sounds pretty persuasive, especially for those sweating to buy their first home.

Is the current housing boom about to bust?Credit:Domain

Beware, buyers: lines like these are heard at the peak of housing booms. Is the current one about to bust?

Remember the worst days of the coronavirus lockdown last year. We couldn’t buy or sell houses that easily. Auctions as we knew them weren’t allowed.

So a slingshot started to get loaded as home buyers delayed their plans. According to ABS home loan data, there were 3600 fewer housing loans in the June quarter in Victoria than the year before.

In the September quarter that number blew out to 5700, or 38 per cent less than the previous year. Even the December quarter was pretty bad, with 2300 fewer loans than 2019.

In total more than 11,300 housing market transactions got put on the backburner during the last half of last year. Prices fell, as did the average home loan.

That slingshot was pulled back even further by ultra-low interest rates – not to mention six months of lockdown-induced household saving, which was 12 per cent up on the same time the year before.

It got wound back further still by stamp-duty relief announced during lockdown, which halved rates for the purchase of new dwellings and a quarter for new homes valued at under $1 million.

Once the lockdowns ended, the slingshot fuelled by that pent-up demand backed by all those subsidies and savings got unleashed and started what has become a gigantic boom. Loans soared by 38 per cent in the March quarter, as did prices but at a lesser pace, and that has continued through to today.

A surge in buyers, especially those keen to escape from Generation Rent, caught everyone by surprise.Credit:Louie Douvis

A surge in buyers, especially those keen to escape from Generation Rent, caught everyone by surprise. Demand trumped supply and prices roared, encouraging existing owners to offer their houses for sale – at inflated values – which they partly used to pay more for another dwelling, giving that slingshot even more oomph than before.

Others used holiday money to buy a second home, knowing that the annual overseas trip would not happen any time soon. They bought up big, pushing tenants out and prices up in far-away places, often by the sea.

Slingshots eventually run out of energy, and that is what will happen sometime during the second half of the year. Property markets cannot keep going gangbusters if the population is falling, which is what has been happening since the September quarter of last year. The state budget reckons growth won’t return until the first half of 2022, and even then it will be at a slow pace by the standards of the past 25 years.

Also, a new house building boom caused by the recently ended federal government’s HomeBuilder scheme will have come and gone, with a record number of new houses finished and ready to be occupied – mostly by people who previously rented.

State government stamp duty rates will start to rise just as that slingshot runs out of steam. It’s not just the new tax rate on properties over $2 million announced in last week’s budget. A bigger whack is coming once stamp duty concessions announced during the pandemic finish at the end of June.

Stamp duty concessions announced during the pandemic come to an end at the end of June.Credit:Louise Kennerley

The price slowdown will ripple through the private rental apartment market, which is already under stress, and eventually seep into the detached owner occupied segment at the centre of the boom.

There is no sign of a population bounce any time soon. The federal government has failed to speedily roll out the jab, making it impossible for large numbers of people to arrive in or leave the country.

Have you noticed how the feds have suddenly become the champion of the border closures they were so critical of last year? As recently as last June Treasurer Josh reckoned “Closed borders cost jobs”, and poured scorn over state premiers who insisted on following the science. These days he says the exact opposite, insisting that our borders must stay closed because “We’ve got to follow the medical advice”.

So now is not the time to be listening to every woman and their dog urging you borrow up big and pile into a red hot property market.

Give it a couple of months and you could be picking up a nice little bargain, instead of buying an expensive dump today at the peak of a property boom.

Dr David Hayward is Emeritus Professor of Public Policy at RMIT University. Liss Ralston is a social data consultant.

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